Well, Q2 sure ended on a nice note. While COVID-19 cases in the US continue to rise at an alarming rate, equities are doing their best to keep up. Today, on a individual day basis, was a good day for US equities (not so much for international or emerging stocks).
And when we start to take a longer look at performance for Q2 we see just how amazing this quarter has been. In fact, the second quarter was one of the finest quarters in the markets in recent memory.
As you can see above, there weren’t any places where you could lose money in broad equity indexes in Q2, just places where you could make a little less. This rally was largely driven by an increased appetite for risky assets as we see in the dispersion of equity factor returns. Growth, Momentum and Small stocks led the quarter while Value, Low Volatility and High Dividend stocks lagged the most.
Similarly, Q2 was quite good across the fixed income space, spanning junk bonds, to emerging markets debt.
Much the same can be said for the commodity market, where only wheat and coal suffered more than negligible losses, and the majority of commodities saw robust gains.
So all around the market landscape investors had much to cheer in Q2, but these gains have come against an ever cloudier backdrop for global economic growth and the continued spread of COVID-19.
Global GDP revisions having been dropping faster than any time in the last thirty years.
Add to declining GDP estimates falling earnings estimates for the S&P 500 for both Q3 and Q4. I don’t know all the drivers of Q2’s performance, but I do see that there are significant headwinds facing global economies and major corporations for the next few quarters or even years. I am hesitant to be exuberant about the prospects of robust market gains in Q3 and Q4, but I would love to be wrong :).